A short term loan is a small loan with its repayment plan on a few days to a few months and maybe to 1 year in some cases. These loans can be obtained from friends or family members, pawnshops or short-term specialized lenders (in physical or online locations). One of the most common types of short-term loan, payday loans, has high interest rates that can exceed 350 percent and rigid repayment policies and are a target for state regulation due to its unfair practices. Payday loans should only be an option as a last resort because they are much easier to obtain than a traditional bank loan. Short-term commercial loans are a bit different since they are a little larger and are repaid for a slightly longer period of time.
Asking friends and family for Short-Term Loans
Understand the advantages and disadvantages. Personal loans can be a great option for people who do not qualify for a regular bank loan as flexible repayment structures and lower interest rates are available for the borrower. However, things can get messy if the loan is not arranged through a loan agreement and returned on time. Another concern is the fact that your personal relationship with cash loans direct lenders may be at risk if you’re not responsible. Make sure you recognize before you lend that you are as responsible for repaying this loan as it would be with a bank loan.
Communicate your repayment plan to the lender
Start by approaching a potential lender with a clear idea of how much you need and how fast you can repay the loan. This will help the lender to establish their repayment expectations. Inflating your ability to repay the loan is something not recommended; if you can only realistically pay $ 500 a month, do not say you can afford $ 1,000. This will only lead to conflicts between you and the borrower on the road. Also, make sure that the lender knows how long it will take you to repay the loan in full.
Although many family members or friends can lend you the money for free (no interest rate), you may consider offering to pay interest on the loan if they do not suggest a fee. This can help persuade a lender to lend to you. In addition, if the loan is worth more than $ 10,000, you might be charged on the loan.
File a loan agreement
As collateral for you and the lender, you must draw up a loan agreement that specifies the terms of the loan. This “promissory note” is a contract that shows identification information for you and the creditor (names and addresses), important dates such as the start date and repayment dates, the total amount borrowed and each individual payment amount. It is better to use a prefabricated model so that your contract is more legally binding and accurate. These models are available online for a small fee from multiple websites.